There's Goldman - And Then There Are The Others

As many expected, Goldman Sachs (NYSE:GS) continues to shine and demonstrate why it stands above the rest. For the second quarter 2009, Goldman reported net income of $2.7 billion, or $4.93 per common share. The results were 33% higher than the comparable quarter and beat analysts expectations of $3.49 per share. If you annualize Goldman's earnings over a year and assume that in normal times the bank will earn anywhere from $16 to $20 per share, the stock still looks like a decent buy at $144 per share today. The real bargain was for those investors who had the conviction to buy when Goldman was trading in the $60 range late last fall. I doubt we will ever see a chance to buy Goldman at a P/E of three or four anytime soon.

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Big Gains for Investors Who Wait
But for patient investors, there still could be healthy gains to harvest. Remember that Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) loaned Goldman money and got warrants to buy shares for around $120 a share. I'm sure Buffett feels that there is a great chance that shares will be worth much more than that years from now. (For more, see The Greatest Investors Tutorial.)

No Big Surprise
Goldman's performance should really come as no surprise. The company has one of the best trading divisions in the world and the market behavior of the past several months was a perfect fit for Goldman's expertise. With interest rate spreads at historic highs and equity and bond issuances spiking, Goldman was often at the forefront.

Goldman's total trading business delivered revenues of $10.8 billion versus $5.6 billion a year ago. Total net revenues were $13.8 billion, so Goldman's trading arm was a big factor in the solid quarter.

Unfortunately, there's Goldman and then there are the others. And the market's muted response to Goldman's solid earnings demonstrates that Goldman occupies its own niche in the financial space.

Wait and See
What really matters to Mr. Market now is results from the likes of Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and JP Morgan (NYSE:JPM), as those businesses have tremendous exposure to mortgages and credit cards. And since a major factor in the health of the overall economy is the strength of the housing and consumer markets, news of stability in those areas from the major financial institutions will likely carry more weight.

Bottom Line
Goldman's results are undeniably impressive, but the company has long been revered as a top-tier trading and risk-management firm. Despite the positive results, Mr. Market will want to see more from the bigger firms that have a wider presence over all sectors of the economy. (For further reading, see The Value Investor's Handbook and The Evolution Of Banking.)

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